Tuesday, July 12, 2016

EU sanctions for excessive deficits: “It’s a blow to lose a state per year” – L’Express

The decision was expected. Eurozone ministers on Tuesday triggered unprecedented sanctions process against Spain and Portugal, accused of having squandered their deficits. Contacted by Express Charles Wyplosz , Professor of Economics at the Graduate Institute of International and Development Studies in Geneva, persevere this way only fuels the ambitions of opponents the European Union .

what kind of sanctions can be taken against Spain and Portugal?

If we stick to the stability Pact, the countries that are in a situation of excessive deficit may be subject to financial sanctions up to 0.2% of GDP. These amounts are then blocked and lost if governments fail to achieve the results required of them. In addition, the Commission may also decide to make Spain and Portugal ineligible for certain European aid.

The Commission will therefore have to make proposals. Good luck to her while Spain is without a government, that Portugal is not in great shape and the UK slammed the door just a few weeks!

How do these sanctions can they influence the two countries?

If we were to apply penalties in the order of 0.2% of GDP, the impact would be disastrous for Spain and Portugal. But impose risks of recession in these countries makes no sense. That is the whole problem of the stability pact that penalizes states in economic difficulty. Consequence: the countries should be applied very mild sanctions. The Commission will have to find a clever compromise to save face of the Stability Pact which has just a lot more without imposing symbolic sanctions.

Anyway, there is a safe bet that these sanctions are not to aggravate the fiscal deficit of the States already described as “excessive”.

This decision comes just weeks after the Brexit, which notably penalized the European Union for such decisions. How this offensive “austéritaire” it can affect the Union?

It’s never a good time to apply sanctions, but actually, the current circumstances it even less suitable. Populist parties continue to climb in the polls and win elections with anti-Europe programs. And that is observed on Tuesday only to give them food for thought.

The stability pact, and the decision is a dramatic example of how the European Union takes over the carpet by insisting on defending design errors. Since the establishment of the stability pact, many voices have described weaknesses and proposed solutions for a smarter budgetary discipline. But it is always difficult for politicians to admit that a decision does not, and even to accept the upgrade. Thus you end up with a monster up.

But in the end, perhaps it is timely. The decision against Spain and Portugal is part of what has disgusted the English. If we want to continue to disgust them, let’s go. If one wishes to make the European Union attractive to new, changing that. Otherwise, it’s a blow to lose a European country every year.